Government and the Economy on the Amazon Frontier

Writing this report has been unusually pleasant. I have benefited enormously from the ideas, advice, humor, and hard work of my friends and colleagues in the Latin American Environment Division of the World Bank. I would especially like to thank Dennis Mahar, Robert (Andy) Anderson and John Dixon for the combination of intelligent insight and good nature that keeps ideas flowing. I would also like to thank my younger colleagues, David Rosenblatt, Maryla Webb, and Gunars Platais for their long hours and tough questions. The ideas on property rights have been stimulated by animated discussions with Lee Alston and Gary Libecap as we embarked together on a discovery of the role of property rights in the Amazon. I thank the World Bank Research Committee for the grant that has made that association possible (the formal results of that work will be forthcoming shortly). This report has also benefited from insightful comments by Dan Biller, Trudy Ann Cameron, Maureen Cropper, Gershon Feder, David Steeds, Andrew Steer, David Hughart, Nalin Kishor, and Andres Liebenthal. I am sorry that I have not been able to include all of your suggestions for improvement. Next time well try to do better

Government and the Economy on the Amazon Frontier Government and the Economy on the Amazon Frontier Government and the Economy on the Amazon Frontier WORLD BANK ENVIRONMENT PAPER NUMBER 11 Robert R Schneider Copyright © 1995 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W Washington, D.C 20433, U.S.A All rights reserved Manufactured in the United States of America First printing August 1995 Environment Papers are published to communicate the latest results of the Bank's environmental work to the development community with the least possible delay The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors Some sources cited in this paper may be informal documents that are not readily available The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use The boundaries, colors, denominations, and other information shown on any map in this volume not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries The material in this publication is copyrighted Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910,222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'Iéna, 75116 Paris, France Robert R Schneider is with the Rain Forest Trust Fund in the Latin America and Caribbean Department of the World Bank Library of Congress Cataloging−in−Publication Data Schneider, Robert R Government and the Economy on the Amazon Frontier Government and the Economy on the Amazon Frontier Government and the economy on the Amazon frontier / Robert R Schneider p cm.—(World Bank environment paper ; no 11) Includes bibliographical references ISBN 0−8213−3353−4 Land settlement—Government policy—Amazon River Region Land settlement—Government policy—Brazil Land settlement— Environmental aspects—Amazon River Region Land settlement— Environmental aspects—Brazil Amazon River Region—Economic conditions Brazil—Economic conditions—1985− Sustainable development—Amazon River Region Sustainable development Brazil I Title II Series HD499.A45S36 1995 333.3'1811—dc20 95−23161 CIP CONTENTS Acknowledgments link Executive Summary link Part I Government, Equity, and Stability on the Amazon Frontier link Introduction link Review of Recent Evidence on Farming and Ranching in the Amazon link Limited Role of Official Incentives link Reasonably Good Success link Relatively High Turnover link Summary: The Paradox link Part II The Determinants of Frontier Instability link Introduction link Cheap Land and Nutrient Mining link Imediatismo and High Interest Rates link The Sell−Out Effect link Part III Government Arrives link Introduction link Emerged Government link "Sustainability" and the Role of Government on the Frontier link Imposed and Transplanted Government link Annexes CONTENTS Government and the Economy on the Amazon Frontier A Calculation of Maximum Number of Cattle on Farms link Benefiting From FINAM Incentives and Official Credit, 1980 and 1985 B Review of Studies of Colonization Success in the Amazon link C Mathematical Formulation to Derive the "Break−Even Points" link D Calculating NPV of Land for Figure 2.6 link E The Potential for Trade with the Amazon in Greenhouse Gas Reduction link F Expenditure Issues link Bibliography link Tables 1.1 Growth of Cattle in the Northern Region, 1920−85 link 1.2 link Cattle in the Northern States: Composition by Size of Herd (1985) and Rate of Growth by Size of Herd 1.3 Direct Incentives to Livestock Fiscal Incentives (FINAM) and Subsidized Credit, 1971−1987 link 1.4 link Approximate Number of Cattle on Farms Benefiting from Official Credit, 1980 and 1985 1.5 Employment Opportunities for a Rural Laborer link 1.6 Regional Comparisons of Per Capita Income Distribution 1992 INCRA Settlements link 1.7 Indices of Concentration of Land Holdings (GINI) (1975−85) link 1.8 Infant Mortality Comparison−−Deaths per 1,000 Births link 1.9 INCRA Settlement Projects Incomes, Asset Accumulation, and Time on Plot link 1.10 FAO/UNDP/MARA Data−−Relationship Between Economic Performance and Turnover of Settlers link 2.1 Literature Values for Decay Rates of Yields Following Land Clearing link link CONTENTS Government and the Economy on the Amazon Frontier 2.2 "Break−even" Ratio of First−Year Income of Sustainable Technique to Income from Unsustainable Technique 3.1 The Emergence of Government link 3.2 Political Support For Various Government Policies and Services link 3.3 Growing Up? Net Federal Transfers as a Percent of State/Regional GDP (1975 and 1985) link Boxes 1.1 Fiscal Incentives and Deforestation link Figures 2.1 link Agricultural Exponential Yield Data from Four Different Sources 2.2 Sustainable and Unsustainable Yields link 2.3 Sustainable and Unsustainable Yields, With a Decay Rate of 30 Percent and a Rate of Time Preference of 40 Percent link 2.4 Economic Rent and the Emergence of Government link 2.5 Effect of Discounting on Value of Land link 2.6 Effect of Property Rights on Economic Behavior link ACKNOWLEDGMENTS Writing this report has been unusually pleasant I have benefited enormously from the ideas, advice, humor, and hard work of my friends and colleagues in the Latin American Environment Division of the World Bank I would especially like to thank Dennis Mahar, Robert (Andy) Anderson and John Dixon for the combination of intelligent insight and good nature that keeps ideas flowing I would also like to thank my younger colleagues, David Rosenblatt, Maryla Webb, and Gunars Platais for their long hours and tough questions The ideas on property rights have been stimulated by animated discussions with Lee Alston and Gary Libecap as we embarked together on a discovery of the role of property rights in the Amazon I thank the World Bank Research Committee for the grant that has made that association possible (the formal results of that work will be forthcoming shortly) This report has also benefited from insightful comments by Dan Biller, Trudy Ann Cameron, Maureen Cropper, Gershon Feder, David Steeds, Andrew Steer, David Hughart, Nalin Kishor, and Andres Liebenthal I am sorry that I have not been able to include all of your suggestions for improvement Next time we'll try to better ACKNOWLEDGMENTS Government and the Economy on the Amazon Frontier EXECUTIVE SUMMARY Inexpensive, relatively uninhabited land still exists in many Latin American countries This land continues to act as a magnet for both squatters and entrepreneurs in search of new economic opportunity The current pattern of development often results in violent conflict and wasteful environmental damage For this reason, governments in Latin America are increasingly struggling to develop policies to rationalize the settlement and development of these areas Should government enforce laws in remote, frontier areas? Should it provide schools? Health care? Should it create new states and provide representation in Congress? If so where, and how? These are the sorts of questions many governments are facing The Bank is also involved: in policy development in the forest sector, in land use policy implemented through environmental and agroecological zoning projects, and through land tenure and land registration projects Through its responsibilities in the Global Environment Facility and the Pilot Program to Protect the Brazilian Rainforest, the Bank is also forced to confront difficult tradeoffs concerning frontier policies As manager of the Global Environment Facility, the Bank is regularly asked to create mechanisms to ensure that biodiversity reserves receive longrun protection against encroaching development Similarly, under the Pilot Program to Protect the Brazilian Rainforest, the Bank and the Brazilian government are attempting to make "sustainable development" a reality This report addresses some of these issues It is a first step only It illuminates the special characteristics of the overall political−economic context confronting frontier governments The report's motivation comes from concern that too many of the frontier policies currently promoted by the Bank and others are not politically sustainable More attention must be given to the political environment on the frontier and how it is conditioned by economic interest Frontier economies have special characteristics determined largely by an abundance of land and a sparsity of people and capital Frontier governments also have predictable characteristics, mostly determined by their economic context and physical remoteness In large measure these features condition the outcome of government initiatives in frontier areas Most of the data and observations in this report come from Brazil Many of the arguments and conclusions are general, however, and rely on the economic logic of frontier settlement rather than on institution−and location−specific issues The main messages of the report are the following: Settlers in the Amazon appear to be improving their standard of living compared to people with the same education and skills outside the Amazon Transience and farm turnover on the frontier is due to powerful and fundamental economic forces These forces can only be overcome by well−organized government policy Transience, farm turnover, and even apparent land abandonment are not necessarily linked to degradation of the agricultural resource base More attention needs to be given to the importance of reconciling the needs of local politicians with externally designed projects Particularly important is the need to find ways to develop sustained support for the rural development services that encourage small farmer stability Creating a political coalition to support policies for orderly frontier development is difficult Because the interests in more rapid development are largely local and regional, and the benefits from slower, more deliberate growth are national and global, greater political and economic autonomy at the local and regional level may tend to undermine better settlement policies EXECUTIVE SUMMARY Government and the Economy on the Amazon Frontier Roads are the fundamental determinant of settlement An extensive road network erodes incentives for sustainable agriculture and silviculture An intensive network of farm−to−market roads is the most important determinant of economic viability of small farmer agriculture Allocating land initially to small farmers is not only a good policy from an equity standpoint, but in most cases it is the most efficient and orderly way to settle new lands National governments must define their objectives carefully with regard to establishing government beyond the economic frontier.1 Here also, local and national interest are unlikely to coincide These messages and their policy implications are outlined below Standard of Living in the Amazon A number of studies on performance of Amazon colonization have recently been completed They paint a picture of surprising agricultural and developmental success Specifically, they show (a) better results in terms of incomes and asset growth from official colonization projects in the Amazon than from any region in Brazil other than the South, (b) evidence of increasing yields at the farm level, and (c) substantial investment in profitable new pasture technologies in consolidating areas Measured by Gini coefficients, land distribution in the Amazon is substantially better than for Brazil as a whole and trending toward greater equality Infant mortality in the Amazon remained higher than elsewhere, however Economic Determinants of Transience and Farm Turnover Despite relatively good economic performance, farm turnover in the Amazon remains high Transience and instability on new frontiers primarily occurs because the earliest settlers, those extending the frontier at the extensive margin, tend to be relatively disadvantaged in terms of physical and human capital People with low physical and human capital, and little opportunity to well elsewhere, are most likely to endure the deprivation and health risks associated with opening new lands on the frontier People with somewhat higher opportunity costs are likely to wait until the frontier is better established before they take the risk Those who are fully incorporated in the national (or international) economy will generally wait until government is relatively well established, and until property rights are clarified and enforced, before they consider putting life and capital at risk As long as new roads are being built, and no program of well−articulated, offsetting policies is in place, early settlers will generally sell out to a better−endowed second−generation of (often urban−based) buyers This probability grows with (a) increased availability of new land, (b) widening difference in access to credit between the early settlers and the second generation buyers, and (c) the difference in accessibility of government services (education, health, official credit, agricultural research and extension, marketing, and land tenure services) to the early settlers and the entrepreneurs Later migrants (entrepreneurs) have lower discount rates due to better access to credit, and they are better able to take advantage of government services These advantages are reflected in the purchase price they are willing to offer earlier setters These advantages virtually guarantee that the early settler can be bid off the land by newcomers Determinants of Farm Turnover and Land "Abandonment." Popular discussion of land abandonment in the Amazon tends to blame "land degradation" and falling yields Undoubtedly some agricultural land is being degraded in frontier areas: the economics of cheap, easily accessible land tends to promote mining of the nutrients With land nearly free it is cheaper to move the farm to the nutrients than to buy fertilizers and carry them to the farm Nevertheless, other explanations are more consistent with the available empirical evidence, which shows (a) relatively high income and asset growth combined with rapid farm turnover and apparent abandonment, and (b) generally increasing yields through time at the farm level The paradox of rapid farm turnover and land abandonment is better explained by changes in property rights regimes than by land degradation EXECUTIVE SUMMARY Government and the Economy on the Amazon Frontier In Brazil, there have been two periods of farm turnover and apparent land abandonment The first occurred when entrepreneurs from the formal sector were encouraged by government to prematurely (relative to potential profitability) establish ranches in new frontier areas These entrepreneurs became discouraged They abandoned their claims when they realized that, due to remoteness, (a) cattle ranching did not pay as well as alternative investment, and (b) the government was not willing (or able) to protect property against invasion by squatters (who did find farming in the Amazon competitive with their alternatives elsewhere) The second abandonment (a reverse of the first) is occurring now in many colonized areas of Pará and Rondônia It occurs when property rights become secure enough for urban−based speculators to leave land idle without fear of invasion Because of their superior access to credit and government services, it is relatively easy for these entrepreneurs to bid the earlier settlers off the land Stability and the Needs of Local Politicians As outlined in an excellent OED review of the determinants of success in rural development projects in Brazil's Northeast, support from local and regional politicians for the outcome of the project is a critical determinant of success Where project components could be timed to correspond with the electoral cycle, or could be visibly associated with the individual leaders (e.g., the governor) the probability of success improved greatly Where this was not the case, the project faced the risk of being diverted to fulfill short−term budget needs or used to pay off political debts The challenge to the Bank and to national governments is to resolve possible conflict between the nature of initiatives most likely to increase electoral success, (e.g., infrastructure development) and activities that lead to the highest quality development (e.g., sustaining recurrent costs of rural education and health care, farm−level agricultural research, improved rural banking services) Where services required for stable frontier development cannot be structured to attract the necessary support, responsibility for these services should be moved to a level of government which faces more consistent incentives Problems of Forming a Coalition for Sustainable Development When a frontier economy rests on mining the natural resource base (i.e., timber, minerals, nutrients), relatively few frontier people have an incentive to see the process slowed Long−run benefits of "rational" development tend to accrue globally and to future generations Where offsetting coalitions for sustainable development cannot be identified, the Bank and donors must be realistic about the political sustainability of reforms, especially those intended to reduce access to resources, such as zoning, land use planning, and logging or forest clearing restrictions Decentralization worsens the prospect, especially if it increases untied transfers and reduces the leverage of central government over states and municipalities (as Brazil has been doing since 1989) New Roads and Land as Collateral By putting new land on the market, new roads tend to prevent agricultural land prices from rising This effect is compounded, if (as is generally the case on the frontier) tenure is insecure, land cannot be used as collateral, and (therefore) credit is not available to bid away economic rent This situation creates uneconomically cheap land; it in turn promotes excessively extensive use of the land This result has both negative equity effects and negative environmental effects Negative equity effects arise because successful smallholder cannot use their proven success to purchase more land on a collateral basis, while relatively well−off outside entrepreneurs can use urban collateral or their own capital to purchase land cheaply without competition from local smallholders Negative environmental effects accrue because (a) underpriced land encourages resource mining, and (b) the combination of insecure tenure and underpriced land encourages deforestation, cattle ranching, and other activities that effectively occupy the land at low cost The Importance of Initial Land Allocation Land allocation policy should promptly grant title to the initial smallholder occupants This action promotes both equity and efficient occupation of frontier land It is efficient because the low opportunity cost of initial squatters ensures that they are the first to actually occupy the land The EXECUTIVE SUMMARY Government and the Economy on the Amazon Frontier alternative policy of titling large formal sector entrepreneurs, who will not occupy the land (because it will not pay their higher opportunity cost), leads to inevitable conflict and uncertain land security for all involved This lesson is clearly demonstrated by years of violent land conflicts in southern Pará Allocating to early squatters is equitable because (a) if they stay, land security will allow them to farm more rationally and profitably, and (b) if they sell out, they can bargain a better price The National Interest in Imposing Government Beyond the Economic Frontier Generally, frontier governments emerge as economic activity and population respond to new economic opportunity In some cases, however, central governments decide to impose outposts of government beyond the economic frontier, generally for strategic or national security reasons Where government expenditure creates the economy, nearly all economic activity responds to derived demand from the imposed government The national interest that established these outpost economies should be kept firmly in mind, and the role of government should be limited to (a) the primary objective for which the outpost was created and (b) ensuring a reasonable quality of life for the population attracted by the government's activity Investment in ''development" in these areas, however, is premature, and almost never a good use of public resources Notes For the purposes of this report the economic frontier is defined as the point where, as one moves from developed areas toward the unintegrated wilderness, the marginal laborer could just cover his opportunity cost (generally as a squatter) PART I— GOVERNMENT, EQUITY, AND STABILITY ON THE AMAZON FRONTIER Introduction Much has changed in the 23 years since Brazilian President General Medici launched the project that would "bring men without land to a land without people." Partially as a result of government's subsequent efforts, between 1970 and 1990 the population of Brazil's Amazonian states doubled to some million inhabitants, more than half of whom live in cities No one any longer considers Amazon colonization to be a panacea for problems of equity and development In fact, the popular perception is that Amazon development in the Brazilian context has been an economic, distributional, and environmental disaster This perception not withstanding, Amazon states have developed increased financial and political autonomy to pursue economic development as they conceive it In addition, the experience and perception of leaders of Amazon states is often at variance with that of the wider public The purpose of this report is threefold First, it reviews the available evidence concerning the effectiveness of Amazon settlement and development in terms of generating incomes, equity, and stable growth Surprisingly good results are currently being reported with regard to colonists' incomes, accumulation of assets, and trends in asset (land) distribution Nevertheless, substantial land turnover is evident, and land degradation and abandonment continues to be reported Chapter analyzes the forces that promote turnover and abandonment, despite the relatively good economic results reported in Chapter Chapter introduces the role of government and analyzes the various forces that bring government to the frontier It analyzes the implications for government as an investment in the development of the Amazon, as well as the role of government in stabilizing frontier land use Notes Government and the Economy on the Amazon Frontier Review of Recent Evidence on Farming and Ranching in the Amazon Much of the economic activity in the Amazon in the 1970s and 1980s was stimulated by government policies, in particular subsidized credit, regional fiscal incentives, and differential taxation (Binswanger, 1989; Mahar, 1989; Schneider, 1992) From this fact many observers have concluded that economic activity in the Amazon was the result of such government activity More recent evidence, however, indicates that economic activity (particularly cattle ranching) in the Amazon is taking place on a scale larger than can possibly be explained by these incentives policies The evidence also indicates surprisingly good economic success in agriculture sustained over a relatively long period The following paragraphs review these findings Limited Role of Official Incentives Approximately 100,000 km2 of native forest have been converted to pasture over the past 30 years, allowing the number of cattle in the north to grow from million in 1950 to more than million in 1985 (see Table 1.1).1 Much of this growth was encouraged by government policies in the form of fiscal incentives, tax policy, and land tenure policy It would seem logical that the recent policy changes, which have largely terminated subsidies to the cattle industry, would discourage ranching in the Amazon However, data from the last agricultural census, discussed below, indicate that the most rapid growth has taken place in small farms unlikely to have received government assistance This finding suggests that other factors besides government policies are currently likely to be responsible for the growth of ranching in the Amazon Table 1.1: Growth of Cattle in the Northern Region, 192085 1920 1940 1950 1960 1970 1975 1980 1985 Head of Cattle NORTH 869,108 999,041 1,020,305 1,234,882 1,706,127 2,129,609 3,989,113 5,358,578 Pará 615,481 705,524 735,529 844,740 1,043,648 1,441,851 2,729,796 3,485,368 Amazonas 238,449 270,180 87,440 141,424 263,437 203,437 355,748 420,940 Acre 15,178 23,337 25,020 32,516 72,166 120,143 292,190 333,457 Amapá −− −− 31,010 45,476 64,990 62,660 46,079 46,901 Rondônia −− −− 2,052 3,475 23,125 55,392 251,419 768,411 Roraima −− −− 139,254 167,251 238,761 246,126 313,881 303,501 Average Annual Rate of Growth NORTH −− 0.7% 0.2% 1.9% 3.2% 4.4% 12.6% 5.9% Pará −− 0.7% 0.4% 1.4% 2.1% 6.5% 12.8% 4.9% Amazonas −− 0.6% −11.3% 4.8% 6.2% −5.2% 11.2% 3.4% Acre −− 2.2% 0.7% 2.6% 8.0% 10.2% 17.8% 2.6% Amapá −− −− −− 3.8% 3.6% −0.7% −6.1% 0.4% Rondônia −− −− −− 5.3% 19.0% 17.5% 30.3% 22.3% −− −− 1.8% 3.6% 0.6% 4.9% −0.7% Roraima Review of Recent Evidence on Farming and Ranching in the Amazon Government and the Economy on the Amazon Frontier Table B.5: FAO\UNDP\MARA Data−−Relationship Between Economic Performance and Turnover of Settlers Percent Initial Settlement Settlers Still on Land (in sample) Incomes (numbers of minimum wages) Average Time on Plot (yrs) Annual Average Rate of Growth of Initial Assets (%) Pa5 47 5.51 25 Pa4 64 7.27 37 Pa1 67 5.79 22 To1 67 2.77 43 Ro2 78 3.08 10 To2 91 2.99 25 Ro1 92 4.03 47 Pa2 93 2.62 10 Ac 100 2.02 25 Pa3 100 1.68 46a a This high rate of growth reflects an extraordinarily low level of initial assets Initial assets in this settlement were percent of the mean level for the region as a whole, and percent of the initial assets of the next lowest settlement These numbers should be treated with reservation ANNEX C— MATHEMATICAL FORMULATION TO DERIVE THE "BREAK−EVEN POINTS" The undiscounted income of the sustainable technique is, where Y s is the (fixed) annual yield Discounted, the series yields where V s is the discounted value of the sustainable technique For the unsustainable technique the undiscounted income stream is, ANNEX C— MATHEMATICAL FORMULATION TO DERIVE THE "BREAK−EVEN POINTS" 57 Government and the Economy on the Amazon Frontier where Y u is the first year yield and d is the annual rate of yield loss Discounting, this becomes, Equating these discounted income streams we derive the ratio of incomes at which both activities are equally profitable ("break−even point") ANNEX D— CALCULATING THE NPV OF LAND FOR FIGURE 2.6 The following tables illustrate the calculations used to plot Figure 2.6 Tables D.1 and D.2 show the value of land with and without government enforcement of property rights, respectively The difference in these tables is that where government enforces property rights the potential landholder need not incur the opportunity costs associated with ''premature" occupation Everything else is identical Both tables show the calculated NPVs for the first 10 years For purposes of exposition, the tables are "frozen" in the values that would be used to calculate the 10th year's NPV These are discussed below The yield data were generated by a logistic curve constructed to reach a maximum value of 50 in 35 years The output from this curve is shown in the third column labeled "Yield." From this yield value the opportunity cost of the capitalist ("formal") and squatter are subtracted to yield the 6th and 7th columns labeled "Net Undiscounted." The 8th and 9th columns present the values from the 6th and 7th columns discounting at 15 percent and 25 percent respectively Discounting takes place using the first column (labeled "NPV Time") as will be explained below The objective of columns and is to calculate the net income stream for each year, as seen in that year Therefore future discounted benefits must be calculated from each year discounted foreword from that year Since we are illustrating the calculation of the NPV for year 10 the "NPV time" is set at and all future years are discounted accordingly Note that the NPV values for years through were calculated similarly, summing over all future net discounted values These values have been converted to numerical values−−they are no longer the sum of the net discounted values to their left since the discounting stance has moved foreword The next step in filling out this table would be to convert the NPV values for year 10 into constants (they are currently formulas summing all "net discounted" values below them), and to move the "1" in "NPV Time" to year 11 This procedure was repeated, year−by−year to generate Figure 2.6 Note that in the actual calculations the summation was run out to year 100 ANNEX D— CALCULATING THE NPV OF LAND FOR FIGURE 2.6 58 Government and the Economy on the Amazon Frontier ANNEX E— THE POTENTIAL FOR TRADE WITH THE AMAZON IN GREENHOUSE GAS REDUCTION Growing worldwide interest in the problems of global warming and the emission of greenhouse gases has led to a search for innovative ways to reduce carbon emissions One approach has been to use international trade based on comparative advantage to seek cost−effective strategies for carbon reduction The costs of carbon reduction in the developed, industrialized countries of the North are large and are well known However, there appears to be considerable scope to support carbon sequestration in developing countries in the South, especially in those that have large areas of tropical forests This approach would serve several desirable goals: income transfers from the North to the South; income redistribution to poorer, frontier areas within southern countries; and provision of cost−effective carbon sequestration while also yielding biodiversity and ecosystem benefits This note explores the potential gains from trade between Amazonia and industrialized countries of the North The first section shows that controlling emissions in the Amazon would be considerably cheaper than greenhouse−emission controls proposed, or in effect, in the industrialized North The second section discusses potential institutional mechanisms to facilitate trade It also identifies several problems that would have to be resolved Calculating the Potential Gains from Trade Indicative calculations suggest that the potential gains from trade in carbon emissions between industrial countries and the Amazon are very large These gains can be calculated by comparing the value of a hectare of forest as a store of carbon to its value as agricultural land To calculate the value of forest land as a store of carbon requires two numbers: (a) amount of carbon sequestered in a hectare of forest, and (b) the per−ton value to society of reducing carbon emission The product of these numbers is the social value of a hectare of forest in carbon sequestration The value of forest land in agricultural use is best estimated by the selling price of forest land.1 Comparing these numbers−−the value of carbon sequestered on a hectare of forest relative to the land's selling price−−yields the potential gains from trade between landowners and governments in the Amazon and the northern industrialized countries The value of forest land as a store of carbon can be estimated by: (a) estimating the global damages avoided by not releasing additional carbon to the atmosphere; (b) comparing the value society has been willing to tax itself to reduce further greenhouse emissions; or (c) comparing the costs of alternative sources of greenhouse reductions Since proposals for carbon taxes are typically based on studies of the amount of carbon emissions that can be controlled at different levels of taxation, (b) and (c) are reduced to the same concept Table E illustrates the range of values obtained by various analysts interested in the amount of carbon sequestered per hectare of forest Indicative values, based on a range of existing taxes and proposals, are shown in Table E.2 Based on Tables E.1 and E.2, the potential value of Amazon land in carbon sequestration is between US$245/ha and US$28,300/ha The low estimate is derived by multiplying Fearnside's value of 136 tons of carbon (for the average hectare of forest in the legal Amazon) by Nordhaus' "low" estimate of global warming damage costs The upper bound is obtained by multiplying CBO's estimate of US$100/t carbon, required to reduce emissions to their 1988 level by 2000, by the 283 tons of carbon per hectare estimated by the German Bundestag ANNEX E— THE POTENTIAL FOR TRADE WITH THE AMAZON IN GREENHOUSE GAS REDUCTION 59 Government and the Economy on the Amazon Frontier Table E.1: Total Carbon Storage Forest Type tC/ha (assumes carbon is 50% of biomass) Observations Source Average for Hilea Region 225 Estimates 112 t/ha above ground and 80130 t/ha below ground Sombroek (1992) Dense Amazon Forest 160 Represents weighted average of dense Fearnside forests comprising 49.3% of Brazil's legal (1992) Amazon Average for Brazil's 136 Legal Amazon Area weighted average based on RADAMBRASIL's timber inventories Fearnside (1992) Average for Amazon 160 Above−ground carbon only Houghton, et al (1987) Closed primary forest 283 Estimates 167 t/ha above ground and 116 German t/ha below ground Bundestag (1990) a Carbon stored in above− and below−ground biomass Table E.2: Indicative Values of Carbon Sequestered Basis of Valuation Value US$/Ton of Carbon Observations Source Marginal damage estimate 1.8 "low" estimate 7.3 "medium" estimate 66.0 "high" estimate Based on estimates of costs and Nordhaus damages to the world economy cr:(1991) of global warming Enacted taxes 6.1 45.0 Finland Netherlands and Sweden Shah and Larson (1992) Proposed taxes phased to 25 in 1995 phased to 70 in 2000 Submitted to US Congress Debated in EC Shah and Larson (1992) Penny a gallon of gas 3.5 Required to reduce US greenhouse emissions to 1988 levels by 2000 10 in 1991 increases 10 annually to 100 in 2000 Conclusions of a 1990 study by CBO (1990) the Congressional Budget Office Using values for carbon sequestration that societies have actually demonstrated their willingness to pay generates a narrower and more interesting range Using Fearnside's average carbon content of dense Amazon forest (160 tC/ha), the US$45/tC tax of the Netherlands and Sweden yields a carbon−storage value of US$7,200 per hectare, the Finns' tax of US$6.1/tC yields a value of US$976 per hectare, and a tax of a penny per gallon of gas would yield US$560 per hectare This provides a relevant range of roughly US$600−US$7,000 per hectare Tables E.3 and E.4 compare the author's (unsystematic, 1992) observations on the market price of forest land in the Amazon with estimates of the value of carbon sequestering based on the information in Tables E and E.2 The comparison shows that the value of the forest as a stock of carbon, even at the lowest estimates, is greater than its "present" value in agriculture Even in Rondônia's more active agricultural areas, and using the most relevant range of implicit values of carbon (US$600−US$7,000 per hectare), the sequestration value of forest land is to 50 times greater than its agricultural value However, an accurate estimate of the global warming cost of ANNEX E— THE POTENTIAL FOR TRADE WITH THE AMAZON IN GREENHOUSE GAS REDUCTION 60 Government and the Economy on the Amazon Frontier deforestation must take account of the carbon content of crops established under subsequent land use In the Amazon, economic and agronomic forces ultimately make pasture the most likely use Even after subtracting the value of carbon in pasture (Table E.4), the net value of carbon loss would be to 30 times the agricultural value of forest land in expanding frontier areas of the Brazilian Amazon Impediments to Trade The numbers above demonstrate that very substantial potential exists for gains from North−South trade in greenhouse−gas reduction Administrative difficulties are large, however, and despite these potential gains, a number of hurdles will have to be overcome to generate willing buyers and sellers These are addressed below Transaction Costs There are several difficulties which fall in the category of transaction costs These costs reduce the potential gains calculated above−−if they exceed them, no trade will occur However, the size of the potential gains suggests clearly that an effort to minimize these transaction costs, thereby creating a market, is justified The most important transaction cost is contract enforcement How can the buyer be assured that, having purchased carbon sequestration, the land will not be cleared anyway, if not by the contractee, then by someone else? Similarly, how can the seller be assured that payments will be made as promised? The second is contract facilitation How can potential buyers and sellers be brought in contact? The third is product grading How can the buyer get information necessary to make an informed choice concerning the value of his intended purchase of carbon sequestration? Important information would include forest density, the probability that it would be converted in the absence of intervention, and for many potential buyers, biodiversity value Moral Hazard The major concern over using positive incentives to influence landowner behavior rather than negative incentives (taxes and/or command and control) is that of potential moral hazard.2 In this case, moral hazard takes the form of landowners or governments taking, or threatening to take, environmentally adverse action that they would not otherwise take , in order to increase the value of their contracts At the individual level moral hazard is minimal; once the land is burned or cleared, the landowner has forfeited any possibility to benefit from the program, which applies only to intact forest An additional problem would have to be dealt with at the governmental level, however Since building a road would increase the probability of land conversion, and therefore increase the value of a contract to not convert, a clear governmental commitment on road building would be necessary, as would other government policies Tables E.3 and E.4: Comparison of the Market Value of Forested Land in Brazil to its Value in Carbon Sequestration Table E.3: Expected Value of Amazon Forest Land in Agriculturea Table E.4: Value of Amazon Forest Land in Carbon Sequestration b Location Value US$/ha Value Net Valuation Carbon in Basis Pasture c Pará, 300 Paragominas area, near Belém Brazilia 7,200 4,950 150 1,168 803 Value US$/ha Impediments to Trade Carbon tax in Sweden and Netherlands 61 Government and the Economy on the Amazon Frontier Rondônia, BR364 South of Porto Velho Nordhaus' "medium" estimate of marginal damage from global warming Rondônia, Br364 50 West of Porto Velho 976 671 Carbon tax in Finland Rondônia, Guajará Mirim area 560 385 Carbon equivalent of one cent a gallon gas tax 288 198 Nordaus' "low" estimate of marginal damage from global warming 15 Pará, Transamozonia Altamira area 2.5 a Current market price of the land b Based on carbon content of 160 tons per hectare (see Table E.1) c Assumes 60 tons carbon per hectare (above and below ground) National Sovereignty Any program to allow global interest to influence activity in the Amazon would have to be effectively designed to minimize real or apparent impingement on national sovereignty Illustrative Mechanisms One mechanism to avoid most of the potential barriers discussed above would be for government, NGOs, and others interested in preservation to enter into short−term rental contracts (of conversion rights, for example) that allow the landowner to carry out limited activity consistent with the environmental objective These contracts would explicitly make the landowner responsible for enforcement of environmental restrictions Ideally, an auction market for short−term rental contracts could be developed to generate rapid feedback to landowners Contract values would fall rapidly in areas where violations occur, while good enforcement would be rewarded Restricted and short−term rental contracts would not be seen as a threat to sovereignty, as would outright land purchases NGOs, parties to "debt for nature" arrangements, and other bilateral and multilateral organizations (such as the Global Environmental Facility) could participate either through a concerted strategic program or independent action Another mechanism might be franchising agreements, entered into at, say, the municipio level Municipios would contract with the international community to control the level and nature of development in their jurisdiction Municipios, in turn, would be responsible for determining the nature of incentives and disincentives to be used to control activities at the municipio level Competition among municipios would ensure efficiency in international resource allocation Franchising appears to be a particularly promising way to deal with public lands Illustrative Mechanisms 62 Government and the Economy on the Amazon Frontier Other Issues A minimum critical size of contiguous protected area is essential for protecting biodiversity This suggests that any mechanism to facilitate trade between the North and the South should contain a mechanism allowing contiguous land−use rights to receive a higher value than those that are isolated If successful, the program would probably lead to pressure to clarify land titles and, perhaps in some areas, to an increase in land concentration This process may reduce the prospects for squatters and small farmers Extractivists, and others interested in sustainable economic activity in the intact forest should benefit, however In the past extractivists' meager income has not made it possible to compete with farmers and ranchers for land These low−impact land uses could now operate under the cover of the landowner's contract, or a franchise with the municipio Notes It is often argued that land speculation overvalues land relative to its value in agricultural use In general however, one finds that speculators' prices are based on potential future agricultural potential of the land, not when any large land ownership confers special benefits More generally, land values often exceed the capitalized value of farming profits In any case, we will see that whatever is driving the current price of land in the Amazon, its value in carbon sequestration exceeds its value in alternative market use The reason for using positive incentives in this case is that negative incentives are probably unenforceable (see Schneider, 1992) Briefly, (a) in a frontier setting government has little potential to act in a manner that is contrary to local interests and local incentives−−thus getting local incentives consistent with desired international outcomes is critical; and (b) clear property rights are essential to establish responsibility for land use Property rights only emerge where justified by economic rent relative to transaction costs Thus, in a frontier setting taxing carbon emissions has two fatal problems First, practically, because it is against the interests of nearly everyone on the frontier, it is probably administratively impossible; and second, theoretically, since it would eliminate what little economic rent now exists at the frontier land, it would have no owners to assert responsibility for land use Squatting and natural resource "mining" would become the norm ANNEX F— EXPENDITURE ISSUES This Annex combines the insights from four sources to develop operational guidelines concerning good expenditure policy on the frontier These sources are (a) the discussion of the determinants of frontier instability from Chapter 2, (b) the public finance theory of "assignment," (c) the findings from an OED review of rural development in Northeast Brazil (OED, 1991), and (d) the findings from Michael Nelson's classic study of 24 rural settlement projects on tropical lands in Latin America (Nelson, 1973) The major conclusion from each source is reviewed This is followed by an attempt to draw out the relevant operational guidelines Summary of Factors Contributing to Transience From Chapter we conclude that the major factors leading to transient behavior at the economic frontier are (a) the mining effect, resulting from cheap, abundant land and forest, (b) the imediatismo effect, resulting from high interest rates and poorly developed credit markets, and (c) the sell−out effect, caused by differences between early migrants and subsequent migrants in human capital and access to government services, as well as changes in the rules regulating property rights Other Issues 63 Government and the Economy on the Amazon Frontier Summary of Factors Affecting Success in Development of Tropical Lands from Nelson In his classic study of 24 rural development projects on tropical lands in Latin America, Richard Nelson (1973) identified the factors affecting performance These are reproduced as Table F below As shown, government planning was consistently either neutral (national plans, resource inventories, feasibility studies) or negatively related to success (directed settlement, colonist recruitment, cooperative promotion, formulation of development "packages") The factors positively affecting performance are those relating to location on the frontier: roads, proximity to urban concentrations, and association with commercial enterprises and agro−industry The availability of a forest industry was also important to success, allowing colonists to "cash in" the natural resources in the early stages of establishment In terms of the role of government, only research, extension, credit, and marketing services were positively related to project success, and these only became significant in the growth phase of the projects Summary of Conclusions from OED Review of Rural Development Projects in Northeast Brazil An OED review of rural development in Northeast Brazil (1991) confirms the importance of the guidelines from the public finance literature, while at the same time emphasizing the local political dimension The study found that successful projects were projects that were: (a) relatively uncomplicated (e.g., water supply rather than irrigation, because of the more complex decisions required of irrigation users); (b) under the full control of the executing agency; (c) under the scrutiny of outside pressures, especially for tasks that were not politically popular, such as redirecting services toward the poor, using less rather than more capital−intensive technologies for infrastructure, or reducing unit costs and reaching larger numbers of people (pressures came from beneficiaries, governors, other state agencies, development banks, municipal governments, nongovernment organizations, and the World Bank−−it is noteworthy that withdrawal of pressure was clearly identified with deterioration of performance); and (d) keenly involved with local government (The local involvement helped reduce costs and delays, made state agencies more accountable, and encouraged use of local materials and labor This role of local politics is key: "Many of the successful experiences owed much to the support by energetic governors or state secretaries Governors tended to see Bank−supported projects as offering a menu of components for their support They identified more readily with simple activities that could be planned and executed within the four−year election cycle Whole projects that had many components and long execution periods did not seem good vehicles for making a political mark; the resources they provided risked being used to meet short−term budget needs or pay off political debts.") Summary of Expenditure Guidelines from Assignment Theory The public finance theory of assignment provides several factors important to determine the appropriate allocation of expenditure authority among levels of government First is national interest: Where it is in the national interest to have a function performed (for reasons of national security, national standards of performance, or other national policy) and the interest is not shared by the local population (or the local population can benefit without paying, e.g., national defense), the national government must take responsibility for the action Examples are national defense, national educational policy, national pollution standards, and various "homogenizing" and or nation−building actions at the national level (e.g., affirmative action in the USA) Second is demand−matching: Everything else being equal, services provided locally will be produced more efficiently than services provided from more distant levels of government because local people know best what they need, and they know best how to provide it cheaply (under local conditions) Third, and somewhat offsetting the demand−matching effect, is economies−of−scale: Where economies of scale of provision of a service at a state or national level are so great as to more than offset Other Issues 64 Government and the Economy on the Amazon Frontier inefficiencies due to less than−optimal expenditure composition, it is advisable to move expenditure authority to that higher level Table F.1: Factors Affecting Performance in Tropical Land Development Stage of development and nature of the performance impact Elements influencing Pioneer Consolidation Growth project performance Suc− Neu− Fail− cess tral ure Suc− Neu− Fail− cess tral ure Suc− Neu− Fail− cess tral ure not applicable not applicable Settlement organization Directed X* Semidirected not applicable X not applicable Spontaneous X* X* X* Access X* X* X Feeder X* X* X* Maintenance X* X* X Highways Planning Existence of a national plan X X X Existence of resource X X X X X X inventory Existence of project feasibility study Application of colonist recruitment procedures Forest industry X X* X X* not applicable X Rural development activities Research X X X Extension X X X Other Issues 65 Government and the Economy on the Amazon Frontier Credit X Marketing services X X Cooperative promotion X X X X Titling X X X Housing X X X Water supply X X X X X X Community development Mechanization −large scale commercial enterprises X X −small holdings X X X X Promotion of urban centers (infrastructure and concentration of services, industry, X* X* X* and population) Farm size Establishment of standard minimum unit (1015 ha) Subdivision in variable X X X X X X sizes Reorganization and consolidation of minifundia X not applicable X Balanced development "Package" projects X* not applicable not applicable Simultaneous rural−urban development X* X* X* Association of not applicable X* X* Other Issues 66 Government and the Economy on the Amazon Frontier agro−industry and rural development Association of commercial enterprises and small holdings X X X * High impact on success or failure Table F.2: Transience and Premature Settlement on the Frontier Lessons from other Sources Lessons Learned From: Problem Causes Nelson (1973) OED(1991) Assignment Theory Transience: Nutrient mining Cheap land relative to labor and purchased inputs Caused by abundance of land and forest and building of extensive (rather than intensive) road systems Roads and proximity to urban populations and services are the most critical factors in project success A local forest industry is very important to project success in both the initial and consolidation stages, however, suggesting that mining the forest substitutes somewhat for formal sector borrowing Roads have the right characteristics to receive support from local and regional politicians: they can fit nicely into the electoral cycle, they are relatively simple to execute, and can be built or withheld to influence various constituencies There is a national interest in preventing nutrient mining; that is, to ensuring that the road network is not excessively extensive There is both a local and national interest in improving the local road network There is also a local and regional interest in extending the road network Transience: High interest Imediatismo rates, lack of credit availability, high personal rates of time preference Government credit programs are neutral with regard to initial project success and long term project growth They improve probability of success during the consolidation stage, however As mentioned above, drawdown of natural (forest) capital may substitute Different human capital attributes between early Other Issues It is in the national interest to (a) control overall credit expansion consistent with macroeconomic stability, (b) ensure that credit be allocated efficiently to generate economic growth, (c) reduce inequities in incomes and opportunities, and (d) reduce transience in frontier settlements Tradeoffs are inevitable Local authorities probably only share objective (b) 67 Government and the Economy on the Amazon Frontier settlers and later arrivals who buy them out Transience: Incentives for farm sellout Efficiency loss due to premature government Preferential access to government services by late arrivals Research, extension, credit, and marketing services were found to contribute significantly to project success in the growth phase All other government services are neutral or negative in effect Complicated services, requiring a sustained effort, are not well suited to the needs of state−level politicians Although there is a local interest in these services, in the initial phase there is not the resource base to finance them There is national interest in sustainable agricultural development Lack of health care, education, and community services to "stabilize" early settlers These services are not found to be significant in project success at any stage However project success is defined as economic productivity, not stability of settlement Field observation suggests that activities such as building schoolhouses, health posts and putting in electricity poles fits well in the electoral cycle Recurrent costs of staff and materials often goes unmet, however There is a local interest in these services, although given initial incomes there is not the resource base to finance them There is a national interest in both stabilizing frontier development and improving human capital, however Imposition of government beyond the economic frontier Factors related to remoteness are most clearly correlated with project failure Directed settlement is also consistently related to failure, while spontaneous settlement is related to success National interest creates the settlement (capital city) Subsequent local interest in (subsidized) development is not in national interest BIBLIOGRAPHY Almeida, Anna Luiza Ozorio de Deforestation and Turnover in Amazon Colonization Discussion Paper No (draft) Washington, D.C.: The World Bank, 1992 Anderson, T L., and P J Hill ''The Race for Property Rights." Journal of Law and Economics 33 (April 1990): 177197 Binswanger, Hans P Brazilian Policies that Encourage Deforestation in the Amazon World Bank Environment Department Working Paper No 16 Washington, D.C.: The World Bank, 1989 Browder, J O "Public Policy and Deforestation in the Brazilian Amazon." In Public Policies and the Misuse of Forest Resources, edited by R Repetto and U Gillis Boston: Cambridge University Press, 1988 BIBLIOGRAPHY 68 Government and the Economy on the Amazon Frontier Cowell, Adrian The Decade of Destruction: The Crusade to Save the Amazon Rain Forest New York: H Holt and Company, 1990 FAO/UNDP/MARA Principals Indicadores Sócio−Econômicos dos Assentamentos de Reforma Agrária FAO/PNUD − Ministerio da Agricultura e Reforma Agrária Project BRA−87/022 Brazil, 1992 Fearnside, Philip M "Forest Biomass in Brazilian Amazonia: Comments on the Estimate by Brown and Lugo." Interciencia (1992) ——— "Land Clearing Behaviour in Small Farmer Settlement Schemes in the Brazilian Amazon and its Relation to Human Carrying Capacity." In Tropical Rain Forest: The Leeds Symposium, edited by A C Chadwick and S L Sutton Leeds: Leeds Philosophical and Literary Society, 1984 ——— "Cattle Yield Prediction for the Transamazon Highway of Brazil." Interciencia 4(4) (1979):220226 ——— "Summary of Progress in Quantifying the Potential Contribution of Amazonian Deforestation to the Global Carbon Problem." In Proceedings of the Workshop on Biogeochemistry of Tropical Rain Forests: Problems for Research, edited by D Athie, T.E Lovejoy and P de M Oyens, 7582 São Paulo, Universidade de São Paulo, Centro de Energia Nuclear na Agricultura (CENA), 1987 Gasques, Jose Garcia, and Clando Yokomizo "Resultados de 20 Anos de Incentivos Fiscais na Agropecuária da Amazonia." Anais 14 Encontro Nacional de Economia Rio de Janeiro:ANPEC, 1986 Gates, Paul W Landlords and Tenants on the Prairie Frontier Ithaca, New York: Cornell University Press, 1973 German Bundestag Protecting the Tropical Forests: A High Priority International Task Bonn: Bonner Universitats−Buchdruckerei, 1990 Gunderson, Gerald A New Economic History of America New York: McGraw−Hill, 1976 Hecht, S B Cattle Ranching Development in the Eastern Amazon: Evaluation of a Development Policy PhD Dissertation Berkeley: University of California, 1982 ——— "Environmental Development and Politics." World Development 13(6) (1985):663684 ——— R B Norgaard and G Possio "The Economics of Cattle Ranching in Eastern Amazonia." Interciencia 13(5) (1988):233240 Hibbard, Benjamin H A History of the Public Land Policies New York: P Smith, 1939 Houghton, R A., et al "The Flux of Carbon From Terrestrial Ecosystems to the Atmosphere in 1980 due to Changes in Land Use: Geographic Distribution of the Global Flux." Tellus 39B (1987): 122139 Jones, D W., et al Farming in Rondonia Oak Ridge National Laboratory for the U.S Department of Energy and Department of Urban and Regional Planning, Virginia Polytechnic Institute and State University, Blacksburg, Virginia, 1992 Jordan, Carl F "Shifting Cultivation Case Study No 1: Slash and Burn Agriculture near San Carlos de Rio Negro, Venezuela." In Amazonian Rain Forests: Ecosystem Disturbance and Recovery New York: Springer Verlag, 1987 BIBLIOGRAPHY 69 Government and the Economy on the Amazon Frontier Mahar, Dennis J Government Policies and Deforestation in Brazil's Amazon Region Washington, D.C.: The World Bank, 1986 Mattos, M M., C Uhl, and Delman de Almeida Goncalves "Economic and Ecological Perspectives on Ranching in the Eastern Amazon in the 1990s." Paper submitted to World Development Instituto Homen e Meio Ambiente da Amazonia, Brazil; EMBRAPA, Penn State University, 1992 Moran, Emilio F "Adaptation and Maladaptation in Newly Settled Areas." In The Human Ecology of Tropical Land Settlement in Latin America, edited by D A Schumann and W L Partridge Boulder, Colorado: Westview Press, 1989 ——— The Dilemma of Amazonian Development Boulder: Westview Press, 1983 ——— "Government−Directed Settlement in the 1970s: An Assessment of Transamazon Highway Colonization." In The Human Ecology of Tropical Land Settlement in Latin America, edited by D A Schumann and W L Partridge Boulder, Colorado: Westview Press, 1989 Nelson, Michael The Development of Tropical Lands: Policy Issues in Latin America Baltimore: The Johns Hopkins University Press, 1973 Nordhaus, W "A Sketch of the Economics of the Greenhouse Effect." American Economic Review (Papers and Proceedings), 81(2) (1991): 146150 Nye, P H and Greenland, D J The Soil Under Shifting Cultivation Technical Communication No 51, Farnham Royal, Bucks, England: Commonwealth Agricultural Bureau, 1961 Ruthenberg, H Farming Systems in the Tropics New York: Oxford University Press, 1980 Schneider, Robert Brazil: An Analysis of Environmental Problems in the Amazon Report No 9104−Br Washington, D.C.: The World Bank, 1992 Serrão, E A., and J M Toledo "The Search for Sustainability in Amazonian Pastures." In Alternatives to Deforestation: Steps Toward Sustainable Use of the Amazonian Rain Forest, edited by Anthony B Anderson, 195214 New York: Columbia University Press, 1990 Shah, A., and B Larson "Carbon Taxes, the Greenhouse Effect and Developing Countries." In World Development Report 1992 Washington D.C.: World Bank, 1992 Sombroek, W G "Biomass and Carbon Storage in the Amazon Ecosystems." Interciencia (1992) Staniford, Philip Pioneers in the Tropics: The Political Organization of Japanese in an Immigrant Community in Brazil London School of Economics Monographs on Social Anthropology, No 45 New York: Humanities Press Inc, 1973 Thunen, Johann Heinrich von The Isolated State New York: Pergamin Press, 1866 Tickell, O "Nuts, Bucks and Survival." Geographical Magazine (August 1992): 1014 Uhl, C., and R Bushbaker "A Disturbing Synergism Between Cattle and Selective Tree Harvesting." Biotropica 17 (1985): 265268 BIBLIOGRAPHY 70 Government and the Economy on the Amazon Frontier ——— R Bushbaker and A Serrao "Abandoned Pastures in Amazonia: Patterns of Plant Succession." Journal of Ecology (1987) United States Congress, Congressional Budget Office Carbon Charges as a Response to Global Warming: The Effects of Taxing Fossil Fuels Washington, D.C., 1990 The World Bank "Factors in Successful Rural Development: Examples from Northeast Brazil." OED Précis, No 25 Washington, D.C., March 1992 BIBLIOGRAPHY 71 [...]... owns the gas company; and another is a butcher) The Sell−Out Effect 32 Government and the Economy on the Amazon Frontier The Decision to "Abandon Land." Does the evidence of abandoned land support the thesis of fertility decline and loss of agricultural productivity? It may; however, alternative explanations are more consistent with the evidence presented above We can identify two kinds of abandonment... greatest in the Amazon (North)−−with only 79 percent of the original settlers still on their plots compared with 98100 percent in the other regions− the North's economic success was exceeded only by the South By far the worst economic performance was in the Northeast, where average income was only 55 percent of that in the Amazon, and the rate of growth of assets less than one fifth of that in the Amazon Yet... migrating to the frontier self−select on the basis of human capital and opportunity cost That is, people with lowest human capital, and therefore lowest opportunity cost, are most likely to be found furthest out on the frontier Farthest out on the frontier property rights can only be retained by physical occupation of the land As the frontier matures and homesteading is no longer necessary, speculation becomes... focusing on calf and dairy production In this sector the capital investments are in the range of $215/ha, generating profits of $125/ha/yr and yielding a return on investment of 16 percent Colonization and Settlement Schemes Recent studies on settlement and agriculture in the Amazon (also see Reasonably Good Success 13 Government and the Economy on the Amazon Frontier Annex B) indicate that, in economic... evaluation of the success of Amazon development, but unfortunately they cannot yet be answered The tentative, partially subjective Reasonably Good Success 15 Government and the Economy on the Amazon Frontier conclusion, based, inter alia, on the review of indicators and experience which follows, as well as the settlement data reviewed above (and in Annex B), is this: For a given income and educational level,... better opportunities than the alternatives Despite the evidence of relatively good incomes and accumulation of assets, however, rapid land turnover and land abandonment seems to pose a paradox.1 On the one hand farmers seem to be well off relative to their alternatives, and on the other hand they seem to be selling or abandoning their farms and moving on This chapter explores the motives behind this.. .Government and the Economy on the Amazon Frontier Note: Rondönia, Roraima and Amapá were created in 1943 Previously, the data for the first two were incorporated in Amazonas and that of Amapá was incorporated in Pará This explains the sudden fall for Amazonas between 1940 and 1950 Source: Agricultural Census, 1940, 50, 60, 70, 80 and preliminary census for 85 Table 1.2: Cattle in the Northern... responses to free or cheap land, regardless of the underlying agronomic suitability of the soil Intensification occurs only as land prices increase For example, consider PART II— THE DETERMINANTS OF FRONTIER INSTABILITY 22 Government and the Economy on the Amazon Frontier the Mattos, Uhl, Goncalves data reviewed in Chapter 1 Ranchers are investing $260/ha to increase live−weight production per hectare by a... rates in Brazil over the past several years "Imediatismo" and High Interest Rates 26 Government and the Economy on the Amazon Frontier Figure 2.3 contains all the elements of the farmer's decision The initial incomes of the two techniques are 100 and 50 for unsustainable and sustainable techniques, respectively; the rate of decay of yield of the unsustainable activity is 30 percent, and the farmer's time... as the frontier matures and a subtle shift in the property rights regime than it does with loss of productive capacity The Sell−Out Effect 28 Government and the Economy on the Amazon Frontier The literature on farming and ranching reviewed in Chapter 1 portrays a picture of relative long−run economic success in the ranching and farming communities studied Paradoxically, farm turnover was also high, and